The Corporate Insolvency and Restructuring Act, 2020 (Act 1015), also known as CIRA, marks a transformative shift in Ghana’s landscape. This article explores the significance of CIRA, highlighting how it enhances the country’s attractiveness as a destination for investment.
This Act introduces modern and robust frameworks for insolvency and restructuring, aligning Ghana’s legal landscape with international best practices. Before this Act, the absence of an effective legal mechanism for corporate insolvency created a hostile environment for private enterprises, stifling growth and hampering economic development.
KEY FEATURES AND ITS IMPACT ON GHANA AS AN IVESTMENT DESTINATION:
- Modernization of Insolvency Practices:
The repealed Bodies Corporate (Official Liquidations) Act, 1963 (Act 180) failed to keep pace with contemporary business dynamics, necessitating urgent reforms. CIRA on the other hand introduces several novel provisions that align Ghana’s corporate insolvency regime with global best practices, making the country a more attractive destination for investment.
- Restructuring over Liquidation:
CIRA provides distressed companies with the option of restructuring under Administration rather than defaulting to liquidation or receivership, which were the primary foci of previous legislation. Sections 2 to 78 of CIRA allows companies to continue operating as a going concern while undergoing restructuring under the supervision of an appointed Administrator or Restructuring Officer. This process temporarily freezes creditors’ rights and facilitates the implementation of a restructuring plan, potentially leading to better outcomes for all stakeholders than immediate liquidation.[1]
By emphasizing restructuring over liquidation, CIRA encourages companies to take proactive steps toward resolving financial difficulties. Taking this proactive approach helps create a responsible company culture, which attracts investors who are interested in long-term, sustainable opportunities instead of quick, short-term profits.
- Creditor Protection:
CIRA provides protections for creditors, including secured creditors, by ensuring their involvement in the restructuring process[2]. This protection builds investor confidence and makes Ghana a more attractive destination for capital investment, as it reduces the risks associated with financial exposure.
- Establishment of Insolvency Services Division(“ISD”):
One of the highlights of CIRA is the establishment of ISD under the Office of the Registrar of Companies under Sections 153 – 162, which manages the regulation of insolvency practitioners and ensures that processes are conducted fairly and transparently. This transparency and efficiency reduces the time and costs associated with insolvency proceedings, making Ghana an attractive environment for businesses and investors who value predictability and clarity in legal processes.
- Cross-Border Insolvency:
In an increasingly globalized economy, cross-border insolvency has become crucial. Sections 150 to 152 of CIRA incorporate the United Nations Commission on International Trade Law (UNCITRAL) model law on cross-border insolvency. This provision promotes cooperation between Ghanaian courts and foreign authorities, enabling effective management of insolvency cases involving assets and creditors across borders. CIRA allows for the recognition of foreign insolvency proceedings and the participation of foreign representatives in Ghana, thereby fostering international investment confidence.
CHALLENGES WITH CIRA
The primary challenge lies in ensuring that CIRA is both implemented and enforced effectively. It is essential to ensure that all relevant stakeholders, including businesses and insolvency practitioners, adhere to the new procedures established by CIRA. This requires a coordinated effort to communicate and enforce these procedures effectively.
Furthermore, it is crucial to implement detailed training programs to ensure that insolvency practitioners fully grasp CIRA’s framework. These programs should address both the complexities of the new legislation and its practical application. In addition, adequate resources, including updated guidelines and support tools, are necessary to aid to support the learning process.
CONCLUSION:
CIRA is a significant advancement for Ghana’s legal framework. It strikes a careful balance between protecting the rights of creditors and promoting the public interest in sustaining viable businesses. This Act modernizes insolvency procedures, making Ghana more appealing for investment. It creates a stable and predictable legal environment that supports business continuity and economic growth. With these improvements, investors can have greater confidence in Ghana’s ability to effectively manage corporate distress, making it a more attractive option for investment in the region.
[1] Section 1, Corporate Insolvency and Restructuring Act, 2020 (Act 1015)
[2] Section 9, Corporate Insolvency and Restructuring Act, 2020 (Act 1015)
